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Hundreds of thousands of pensioners in Germany 'not liable for tax this year'

The Local Germany
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Hundreds of thousands of pensioners in Germany 'not liable for tax this year'
Pensioners sit on a bench in Dresden. Photo: picture alliance/dpa/dpa-Zentralbild | Sebastian Kahnert

Almost a quarter of a million pensioners will no longer have to pay tax this year, according to new government figures.

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Around 244,000 pensioners will no longer be liable to pay tax in 2024 because they are to benefit from the increase in the basic allowance for income tax.

This figure was confirmed by a spokesperson for the Finance Ministry following a report in the Süddeutsche Zeitung newspaper. However, 114,000 pensioners are also to be added as new taxpayers this year due to the upcoming pension hike in July.

Pension pay outs in Germany will increase by an average of 4.57 percent on July 1st this year. For 2024, there will still be around 6.3 million people in Germany who are considered “taxpayers with pension income,” the spokesperson explained. In total, there are around 21 million pensioners in Germany, making up about a quarter of the population.

READ ALSO: Here's how much more pensioners in Germany can expect to receive this year

The basic tax-free allowance applies to all taxpayers and refers to the annual income up to which no income tax has to be paid. It stands at €11,604 for the current year. To compensate for inflation, it was increased by €696 euros from €10,908 at the turn of the year.

Finance Minister Christian Lindner (FDP) is aiming for an even greater retroactive increase - although this is currently still being discussed within the coalition government. According to the spokesperson, this has not yet been taken into account in the Finance Ministry's figures.

The taxation of pensions was reorganised with a reform in 2004. Gradually, more of people's pensions will becomes taxable, while contributions in the working phase are tax-free.

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The later the start of the pension, the higher the taxable portion of the pension income. Many pensions remain tax-free if pensioners have no other income.

In 2024, the pension adjustment will be above four percent for the third year in a row, and, for the first time, it will be the same nationwide.

Pensions are also likely to increase in future, but not to the same extent as this year, according to a recent report on pensions.

The report assumes an average rate of increase of 2.6 percent per year until 2037. At the same time, the pressure on the pension pot is increasing due to the wave of 'baby boomers' heading into retirement and fewer people in the workforce. 

According to the report, the pension level is likely to fall from the current 48.2 percent to 45.0 percent in 2037 without legislative intervention. This means that pensions will generally no longer increase as much as wages.

The government wants to counteract this with a second pension package and guarantee a pension level of 48 percent for the future. As part of the reform, it also wants to invest at least €200 billion from federal funds on the capital market by the mid-2030s.

Currently someone who receives an average salary for 45 years of their working life gets just over 48 percent of that salary paid to them each month upon retirement. 

READ ALSO: Six things to know about Germany's pension reforms

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